Debunking Some Internet Myths

Myths and misstatements of fact frequently circulate on the Internet,
in email and on websites, and are repeated in endless loops of misinformation.
One common set of such misinformation involves the history of the Social
Security system.

One Common Form of the Myths:

"Franklin Roosevelt introduced the Social Security (FICA)
program. He promised:

1) That participation in the program would be completely voluntary;
2) That the participants would only have to pay 1% of the first
$1,400 of their annual incomes into the program;
3) That the money the participants elected to put into the program
would be deductible from their income for tax purposes each year;
4) That the money the participants paid in would be put into the
independent "Trust Fund," rather than into the General
operating fund, and therefore, would only be used to fund the Social
Security Retirement program, and no other Government program.;
5) That the annuity payments to the retirees would never be taxed
as income."

CORRECTING THE MYTHS AND MISSTATEMENTS

Myth 1: President Roosevelt promised that participation in the
program would be completely voluntary

Persons working in employment covered by Social Security are subject
to the FICA payroll tax. Like all taxes, this has never been voluntary.
From the first days of the program to the present, anyone working on a
job covered by Social Security has been obligated to pay their payroll
taxes.

In the early years of the program, however, only about half the jobs
in the economy were covered by Social Security. Thus one could work in
non-covered employment and not have to pay FICA taxes (and of course,
one would not be eligible to collect a future Social Security benefit).
In that indirect sense, participation in Social Security was voluntary.
However, if a job was covered, or became covered by subsequent law, then
if a person worked at that job, participation in Social Security was mandatory.

There have only been a handful of exceptions to this rule, generally
involving persons working for state/local governments. Under certain conditions,
employees of state/local governments have been able to voluntarily choose
to have their employment covered or not covered.

Myth 2:President Roosevelt promised that the
participants would only have to pay 1% of the first $1,400 of their annual
incomes into the program

The tax rate in the original 1935 law was 1% each on the employer and
the employee, on the first $3,000 of earnings. This rate was increased
on a regular schedule in four steps so that by 1949 the rate would be
3% each on the first $3,000. The figure was never $,1400, and the rate
was never fixed for all time at 1%.

Myth 3:President Roosevelt promisedthat the money the participants elected to put into the program
would be deductible from their income for tax purposes each year

There was never any provision of law making the Social Security taxes
paid by employees deductible for income tax purposes. In fact, the 1935
law expressly forbid this idea, in Section 803 of Title VIII.

Myth 4:President Roosevelt promisedthat the money the participants paid would be put into the independent
"Trust Fund," rather than into the General operating fund, and
therefore, would only be used to fund the Social Security Retirement program,
and no other Government program

The idea here is basically correct. However, this statement is usually
joined to a second statement to the effect that this principle was violated
by subsequent Administrations. However, there has never been any change
in the way the Social Security program is financed or the way that Social
Security payroll taxes are used by the federal government.

The Social Security Trust Fund was created in 1939 as part of the Amendments
enacted in that year. From its inception, the Trust Fund has always worked
the same way. The Social Security Trust Fund has never been "put
into the general fund of the government."

Most likely this myth comes from a confusion between the financing of
the Social Security program and the way the Social Security Trust Fund
is treated in federal budget accounting. Starting in 1969 (due to action
by the Johnson Administration in 1968) the transactions to the Trust Fund
were included in what is known as the "unified budget." This
means that every function of the federal government is included in a single
budget. This is sometimes described by saying that the Social Security
Trust Funds are "on-budget." This budget treatment of the Social
Security Trust Fund continued until 1990 when the Trust Funds were again
taken "off-budget." This means only that they are shown as a
separate account in the federal budget. But whether the Trust Funds are
"on-budget" or "off-budget" is primarily a question
of accounting practices--it has no affect on the actual operations of
the Trust Fund itself.

Myth 5:President Roosevelt promised thatthe annuity payments to the retirees would never be taxed as income

Originally, Social Security benefits were not taxable income. This was
not, however, a provision of the law, nor anything that President Roosevelt
did or could have "promised." It was the result of a series
of administrative rulings issued by the Treasury Department in the early
years of the program. (The Treasury rulings can be found elsewhere
on our website.)

In 1983 Congress changed the law by specifically authorizing the taxation
of Social Security benefits. This was part of the 1983 Amendments, and
this law overrode the earlier administrative rulings from the Treasury
Department. (A detailed explanation of the 1983 Amendments can be found
elsewhere on our website.)

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The Social Security Administration (SSA) website contains links to websites not affiliated with the United States government. These may include State and Local governmental agencies, international agencies, and private entities.

SSA cannot attest to the accuracy of information provided by such websites. If we provide a link to such a website, this does not constitute an endorsement by SSA or any of its employees of the information or products presented on the non-SSA website.

Also, such websites are not within our control and may not follow the same privacy, security or accessibility policies. Once you visit such a website, you are subject to the policies of that site.